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RCM SYSTEM and OPERATIONS MANUAL

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RCM SYSTEM and OPERATIONS MANUAL Powered By Docstoc
					Okanagan University College

Responsibility Center Management

Policy and Procedures Manual

January, 2004

DRAFT




                1
RCM OPERATIONS MANUAL
Responsibility Center Management (RCM) Financial and Budget System




Table of Contents                                                     Page

   1. Introduction to RCM                                              4


   2. Responsibility Center Units

      2.1 Overview                                                     4
      2.2 Responsibility units defined                                 5
      2.3 Typical rules for responsibility center management system    7

   3. Responsibility for Revenues and Expenses

      3.1 Revenues:                                                    8
         Tuition revenue for base funded programs
         Tuition revenue for non-base funded programs
         Continuing Education revenues under RCM
         Government block funding

      3.2 Expenses:                                                     9
         Continuing position salaries
         Temporary salaries
         Non-salary expenditures
         Recruitment expenses

      3.3 Salary savings:                                              10
         Vacancy savings
         Step savings

      3.4 Capital transfers                                            11


   4. RCM policies required for OUC
      4.1 Application of polices                                       11
      4.2 Carry forward of surplus and deficits summary                12
      4.3 Tuition fee revenue allocation summary                       13


                                        2
5. Labour Relations/Human Resources Procedures
      Recruitment                                                14
   • Advertising
   • Interview expenses
   • Relocation


6. Budget Process                                                14

7. Financial Reporting                                           14

8. Appendix A – Carry forward of surpluses and deficits (#6.1)   16

9. Appendix B – Tuition allocation methodology (#6.2)            21




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1. INTRODUCTION TO RCM:

Okanagan University College has adopted a new budget model – Responsibility
Center Management (RCM) - for all internal financial reporting and budgeting.

Beginning in fiscal year 2003-04 OUC adopted an RCM budgeting and financial
management system with the goal of decentralizing management, budgeting,
and decision making to those who are most directly responsible for performance.
RCM is a budgeting and financial management system that provides incentives
for income generation, supports effective resource management and cost control
and that integrates academic and financial planning in a multi-year planning
environment.

RCM, as a financial and managerial structure, exists along side the strategic
planning, annual planning and budget process and acts as a compliment to
institutional decision processes. It promotes greater entrepreneurial activity by
individual RCM units. It provides avenues for enhanced communication and
participation among and between separate areas of the university and with other
institutional partners. It provides more opportunities for review and input by more
groups and individuals according to the managerial arrangements of the various
RCM units and thereby distributes decision making to RCM unit managers as
appropriate to legal, fiduciary and practical limits.

Although RCM opens up opportunities for innovation and financial growth, it also
demands greater accountability and oversight to protect quality and other
institutional values, and to discourage unhealthy competition. Comprehensive
financial, legal and administrative policies and procedures must continue
to apply to the conduct of University business at both administrative levels
and at the level of each RCM and responsibility unit.


2. RESPONSIBILITY CENTER UNITS:

2.1 Overview:

The responsibility center is the key budget-management and decision making
unit in RCM. There are two types of responsibility centers: “contribution or profit
centers” which generate operating revenue and incur costs, and “cost centers”
which generate little or no revenue but incur costs providing support services to
the contribution or profit centers.

With RCM, an institution is organized into separate responsibility units
comprising the faculties, campuses, general administrative departments, etc.



                                          4
Budget responsibility for all major revenue and expense categories is
decentralized to each Dean, Principal and unit administrator and they are
accountable for managing their unit’s “bottom line”. At the end of a fiscal year,
budget surpluses can be saved and carried forward and invested for new
endeavors, or held for protection against future deficits. Budget deficits become
obligations of the unit to be repaid from the future year resources. The ability to
carry forward surpluses and the need to avoid deficits are incentives in RCM that
encourage entrepreneurship and thereby, growth in the overall resource base. As
is the case in higher education, most departments/programs and activities must
still be subsidized in order to uphold their mission. However, RCM decentralizes
responsibility for programmatic financial decisions so that more decisions can be
made by those best able to weigh their consequences in the management of
their resources. The academic RCM unit is responsible and accountable for both
academic and financial performance. In turn this frees up institutional leaders to
focus on larger issues of financial strategy and priorities.

Each RCM unit in turn may be comprised of multiple departments/programs that
vary in mission, size and complexity. Most departments and programs alone are
too small to absorb the shifts in activity or cost structure that can occur which is
why RCM is usually applied at a larger unit level. RCM is a general incentive
model based on averages. It is not a detailed cost accounting model and
therefore is only a rough approximation of costs and revenues. To move to a
detailed cost accounting model and full implementation at a department level
would be a significant administrative task. OUC chose not to do this.

2.2 Responsibility units at OUC defined:

The responsibility centers at OUC include both contribution centers and cost
centers. The initial implementation of Responsibility Center Management will see
the establishment of the academic RCM units which are the contribution units
that generate both revenues and expenses. The model will also incorporate the
regionalization aspects of OUC whereby responsibility for the academic plan at
the Vernon, Penticton and Salmon Arm Campuses has been decentralized to the
Principals at these locations. Therefore these regional campuses and each of the
faculties at the Kelowna North and South campuses will be academic RCM units.
The remaining administrative and support responsibility units which incur costs
supporting the academic units will be cost centers.

The initial implementation of Responsibility Center Management at OUC will see
the establishment of the academic RCM units (contribution units) as follows:

   •   Shuswap/Revelstoke (Salmon Arm)
       Includes:
       • Academic, vocational and development courses offered at Salmon Arm
       • Salmon Arm Administration
       • Continuing Education (CE) - regional operations


                                          5
   •   North Okanagan (Vernon)
        Includes:
       • Academic, vocational and development courses offered at Vernon
       • Vernon Administration
       • Continuing Education (CE) - regional operations

   •   South Okanagan Similkameen (Penticton)
       Includes:
       • Academic, vocational and development courses offered at Penticton
       • Penticton Administration
       • Continuing Education (CE) - regional operations

   •   Kelowna Campuses - Each faculty Is a separate RCM unit.
       They are as follows:
       • Faculty of Arts
       • Faculty of Business
       • Faculty of Education
       • Faculty of Health and Social Development
       • Faculty of Science
       • Faculty of Engineering Technologies
       • Faculty of Industrial Trades and Services
       • Faculty of Adult and Continuing Education (Continuing Education- CE
          regional operations for Kelowna only)

The administrative and support responsibility units (cost centers) provide support
to the academic RCM units. They are as follows:

       Office of the President
       Office of the VP Academic
       AVP Information Services
       OUC Library
       OUC Wide (General)
       Division of Admissions and Registrar
       Division of Student Affairs
       Division of Housing, Food & Conference Services
       Division of Computing and Media Services
       AVP Advancement
       Division of Financial Services
       Division of Human Resources
       Division of Labour Relations
       Institutional Research
       Supply Management Services



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       Division of Facilities Management
       AVP Finance and Analysis
       Governance
       AVP Legal Affairs
       Public Affairs
       VP Research Services
       OUC International


2.3 Typical rules for a Responsibility Center Management system:

The following provides a brief over view of some details about how a typical RCM
system operates:
   • Each RCM unit develops its own strategic and financial plan that is
       consistent with the university’s overall plan.
   • Each unit is responsible for its financial decisions and for managing both
       revenues and expenditures to a bottom line.
   • Tuition revenues are expected to be focused toward the costs of serving
       students and therefore, tuition revenue is distributed to academic units
       based on the number of credit hours taught by the unit. In order to allow
       for planned, orderly reactions to changes in revenues resulting from
       enrollment shifts tuition budgets are often determined for each unit based
       on the historical average of credit hours taught.
   • Central funding appropriations, including government funding, are
       allocated to RCM units based on judgement rather than any
       predetermined formula. Every unit in the institution depends on some
       portion of the central appropriations. Appropriations are often made based
       on the difference between a unit’s revenues and expenses.
   • In order to ensure a commitment to institutional goals and the integrity of
       institutional values, a portion of the university budget is also set aside for
       distribution by the Provost based on an institution’s strategic priorities.
   • All direct expenditures and any other expenditure that can be directly
       tracked to a unit are assigned to that unit. (Note that in the full RCM
       model all indirect expenditures are allocated to the academic units based
       on some pre-established allocation models. OUC has chosen not to do
       this at this time).
   • The units have the ability to carry forward yearend surpluses and they also
       have the obligation to deal with unit deficits.


3. RESPONSIBILITY FOR REVENUES AND EXPENSES:

The revenues and expenses related to the academic RCM units will be assigned
to the units as follows:




                                          7
3.1 Revenues:

General guiding principle: Tuition revenue and government block
funding will be shared across both the academic RCM units and the
central and support responsibility units of OUC. Sharing tuition revenue
and the government grant across all units allows the university to
compensate for wide disparities of unit costs. It also allows the total
organization to share any growth and/or any decrease in tuition revenues
and government funding.

   Tuition revenue for base funded programs:

   •   The initial recommendation is that tuition revenue be shared 80% to
       academic RCM units and 20% to central administrative and support
       units. The 20% will be held centrally and not allocated to individual
       central administrative and support units. The 80% actual tuition
       revenues related to the base funded academic programs will be
       allocated to the individual departments within the academic RCM
       units as per the tuition allocation policy # 6.2. See Appendix B.
   •   Tuition revenue budgets for each department will be established
       based on a historical two-year average for credit billing hours. In
       cases where this may set an unrealistic budget for a unit (i.e. a
       regional campus where small enrollments have a big impact as a
       result of programming changes) just the previous year’s credit
       billing hours will be used as a base. Budgets for each unit will be
       established on the 80/20 shared basis as above. See Appendix B.

   Tuition revenue for non-base funded programs (cost recovery
   programs):

   •   Tuition revenues for the non-base cost recovery programs will not
       be shared on the 80/20 basis as above but will be allocated directly
       to the specific non-base programs to which they relate.
   •   English as a Second Language (ESL) tuition revenues are not part
       of the shared allocation model. Specific arrangements on how this
       revenue will be distributed are currently being discussed.
   •   International revenues are not part of the shared allocation model.

   Continuing Education (CE) revenue under RCM:

   This department provides access to higher education for residents
   within the OUC region. The programs may be credit or non-credit in
   nature. These programs are funded on a cost recovery basis.




                                  8
  This division also coordinates summer session and distance education
  with undergraduate degree offerings.

      All actual non-credit and credit course revenue will be fully
      attributed to the CE department in each current fiscal year.
      The CE department will also receive its contract revenue in each
      fiscal year. Contract revenues from programs offered in conjunction
      with other university programs may involve revenue sharing that
      would be based on individual agreements made between the
      department and each of those programs.
      An overhead contribution policy for CE programming which
      supports the OUC infrastructure activities is under consideration at
      this time as the treatment of over head contributions is inconsistent
      across the organization.

  Government block funding:

  •   In the initial year the government grant block funding will be
      allocated to the academic RCM units based on the difference
      between revenues and expenses for each unit in order to bring the
      unit to a balanced position. In the beginning year this will be a
      smooth transition with no redistribution of resources. In subsequent
      years this allocation will be based on a subjective review of the unit
      budgets to determine the amount of allocation required to bring the
      unit to a balanced position (as the result of any tuition revenue or
      expenditure budget adjustments.) Allocating the grant by judgement
      rather than formula considers that academic and institutional values
      need to play a decisive role in the allocation process particularly as
      every academic unit depends on a portion of the government grant
      block funding.
  •   Central administrative and support units will be funded from the
      central share of tuition revenue and government block funding.
      Funding for these units will remain central and will not be allocated
      directly to each unit, rather the unit will be given an annual
      expenditure budget with a target bottom line.


3.2 Expenses:

  •   Continuing position salary budgets and related benefit expenses
      that directly relate to the academic RCM unit will be attributed to
      that unit. Continuing budget splits will be based on faculty
      workloads in each academic unit and will be determined by the
      educational plan and discussions between the Deans and
      Principals.




                                 9
   •   Temporary salary budgets for instructional staff will be allocated to
       the appropriate RCM unit in the fall of 2004/05 once staffing
       determinations have been made.
   •   Non-salary expense budgets (travel, supplies, etc) will remain with
       the faculty RCM units and will not be allocated to the regional
       campus RCM units at this time. They remain the responsibility of
       the Dean until such time as an appropriate division of expense
       budgets for each regional campus can be determined.
   •   Recruitment expenses - All responsibility units will be required to
       cover their recruitment costs through salary savings.
   •   In the initial implementation of RCM there will be no allocation to
       the unit for indirect costs related to services such as Finance,
       Human Resources, Registrar, Facilities, Library, etc. Support areas
       will develop service level agreements to support the level of
       expenditure funding they receive. These agreements will hopefully
       be developed for the next budget cycle.


3.3 Salary savings (Applies to both RCM and Support Units):

Salary savings that may be retained by the RCM unit and the
administrative and support units will be determined by the following
procedure:

   Vacancy savings:

       •   Position savings due to vacancies will accrue to the RCM units
           or administrative and support units in the initial year of the
           vacancy. Faculty positions that remain vacant into the next fiscal
           year will be set at the position budget rate (Grid 2 Step 7) at the
           beginning of the new fiscal year.
       •   Where a temporary replacement is hired to fill a continuing
           position vacancy the step savings will remain with the
           department until such time as a permanent replacement is
           hired.

   Step savings:

       •   Where a permanent replacement for a continuing position
           vacancy is hired at a lower step in the grid, any step savings
           resulting will revert to a central fund during the fiscal year.
       •   Where a temporary replacement is hired to fill a continuing
           position vacancy during the year the step savings will remain
           with the department until such time as a full time continuing
           position is hired.



                                  10
            •   If a continuing position is hired at a greater step than is in the
                budget the RCM unit/Support unit will be required to cover the
                additional cost from vacancy savings during the fiscal year.


     3.4 Capital transfers:

         There are two different types of transfer requests:

         1) Requests to transfer existing approved budget allocations: (i.e. from
            an approved budgeted amount that is not needed as originally
            planned).
            OUC can support requests of this type where the funds are coming
            from an existing approved budget allocation and all that the budget
            unit manger is doing is re-tasking this resource to another use in
            the existing fiscal year. This would be subject to existing approval
            processes.

         2) Requests to spend surpluses that arise from increases in activity
            over and above that budgeted. These are not supported for the
            following reasons:
            • They increase the overall institutional revenue and expenditure
                levels of the institution beyond what was approved in the annual
                budget.
            • The actual funding may not materialize because of issues that
                arise in the year-end accounting process that have not been
                reflected in either expenditure or revenue accounts.
            • RCM units have not met their account minimums required to
                access carry-forward funds.


4. RCM POLICIES REQUIRED FOR OUC:

  4.1 Application of policies:

     •   RCM policies apply to the operating budgets only.
     •   Restricted budgets, Research, capital budgets, special one-time funds
         are not included in RCM policies.
     •   The RCM carry forward policy applies at the academic RCM unit level.
         Individual department surpluses and deficits within the RCM unit
         summarize to the total that can carry forward for the overall unit. The
         government grant allocation is set at an amount to balance the overall
         RCM budget unit to zero. The government grant revenue is recorded
         at the RCM unit level in the Dean’s or Principal’s office.
     •   The RCM carry forward policy also applies to the administrative and
         support responsibility units as defined in 2.2 of this document.


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   •   A summary of the two main policies follows:



4.2 Carry forward of surpluses and deficits #6.1 (Appendix A):

       Under RCM, a surplus is defined as the responsibility center’s ending
       financial result that is greater than the budgeted bottom-line (net). A
       deficit is defined as an ending financial result that is below the
       responsibility center’s budgeted bottom-line (net).

       At the end of the fiscal year the surplus/deficit position of these units
       will be dealt with according to the carry forward policy #6.1. This policy
       outlines the calculation of the surplus/deficit position and how it is
       carried forward. At this time the policy recommends surplus retention
       at 100%. It also indicates that deficits become the obligation of the
       units. See Appendix A for policy details. A summary of this policy
       follows:

       •   The carry forward surplus/deficit policy applies to RCM academic
           units and also support units such as Student Services, Labour
           Relations, etc. (Incentives for everyone!)
       •   Surpluses as determined at yearend are carried forward 100% at
           the RCM/Support unit level as defined in 2.2 of this document.
       •   A unit must maintain a minimum surplus reserve of 0.5% of total
           expenditures. The maximum surplus reserve is 5.0% of total
           expenditures.
       •   Surplus funds can only be used for one-time type expenditures
           (capital, program development, one-time program offerings, etc).
       •   RCM/Support unit managers can make expenditures of $10,000
           from surplus funds without approval. For expenditures greater than
           this they need the approval of the appropriate VP.
       •   A report of how surplus funds have been expended or a plan of
           how it is to be expended in the fiscal year must be provided to the
           VP each year.
       •   Deficits also carry forward at 100% to the RCM/Support unit level
           and the unit manager must provide a plan to the VP on how he/she
           will eliminate the deficit.

       Carry forward information will be calculated by the Director of
       Financial Services following the completion of the annual audit
       process and will be forwarded to the academic RCM and
       responsibility cost center unit managers shortly thereafter. The
       Director of Financial Services will provide direction on how to
       access carry forward funds.



                                      12
4.3 Tuition allocation methodology - Policy #6.2 (Appendix B)

   Under RCM, each of the academic units is allocated a share of the net
   tuition. Allocation methodology is as follows:

   •   Tuition revenue for the base funded programs is shared 80% to
       the academic programs and 20% to the central and support
       services. The government grant is also shared by all units.
   •   Other non-base tuition is recorded at 100% to the non-base
       programs (who may contribute an overhead amount).
   •   For academic units tuition is allocated at the department level within
       the RCM unit.
   •   For administrative and support services areas tuition is not
       allocated to specific departments but held centrally to fund units
       overall.
   •   Tuition revenue will be credited to the unit that pays for the
       instructional costs.
   •   If units share instructional resources they may negotiate additional
       arrangements, as they deem appropriate.


   •   Tuition revenue budgets 2003/04:
       • Faculty departments – the budgets are based on an average of
          the previous two years billing credit hours times the billing rate
          approved by the Board for 2003/04 budget. ($108/billing credit
          hour for academic programs and $80/billing credit for vocational
          programs).
       • Regional campuses – the budget is based on only the previous
          year billing credit hour information. In 2004/05 the budget will be
          based on a two-year average as well. (OUC needed to
          incorporate the impact of mode C instructional workloads on the
          Regional Campuses that occurred in 2002/03 as a result of
          collective agreement changes).

   •   Actual tuition revenue in 2003/04:
       • Actual tuition revenue is allocated to departments based on
          billing credit hour information received from the Registrars
          office. The tuition revenue is allocated to academic units based
          on the billing credit hours information as provided by the
          Registrars office at the stable enrollment dates.
       • Actual tuition revenue will be distributed in October, February
          and March. (Note that budgets have been entered for the same
          time period so that actual and budget revenues appear in the
          financial reports in the same time period for comparative
          purposes).



                                  13
           •   Bad debt expenses will be applied to the department in which
               the original revenue was recorded.



5. LABOUR RELATIONS/HUMAN RESOURCES:

     Recruitment:

        The Dean and Principal involved with staffing for a position that
        crosses campuses should initiate the staffing request through the
        Deans’ office.
        Advertising should be done through cost effective methods.
        Advertising costs will be prorated to the RCM units based on the
        percentage budget split of the position by RCM unit. These costs
        require the approval signature of both the Dean and the Regional
        Principal.
        Interview expenses. These expenses should be shared by the RCM
        units involved based on the percentage budget split of the position.
        These costs require the approval signature of both the Dean and the
        Regional Principal.
        Relocation costs. Relocation costs need to be approved by the RCM
        managers involved and shared between the units based on the
        percentage budget split of the position.
        Costs of recruitment are to be funded through vacancy salary savings.

     Please refer to Labour Relations for further details on recruitment and
     other staffing issues.


6. BUDGET PROCESS:

        As part of the annual budget planning and development process, each
        contribution center will devise a 3-year programmatic and financial
        plan.
        Annual budgets will be prepared by each RCM unit and submitted to
        the Provost for review. Program goals and performance targets will be
        set in consultation with senior management as part of the annual
        budget process.
        Requests to increase budgets must be accompanied by a
        demonstrated source of revenue.
        A system to support Web based budgeting will be reviewed for
        implementation as soon as possible.


7. FINANCIAL REPORTING:



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          Reporting requirements will be supported by the use of the program
          code from the FOAPAL to identify location in the beginning year of
          RCM. For the 2004/05 year a new chart of accounts based on the
          organization code structure will be developed.
          Reporting mechanisms to support RCM will be refined over the next
          year.

Central and support units will be reviewed in 2003-04 to determine where it is
appropriate do set up RCM units and where it might be appropriate to allocate
indirect costs.
Many details of procedure and practice will have to be worked out and no doubt
refined in the course of this budget reform. RCM will be reviewed after the first
year of experience with the model. Of necessity refining the model will be
an evolving process.




                                       15
APPENDIX A - Carry forward surplus/deficit policy #6.1




   Title                     Carry forward surplus/deficit policy

Policy Area                  Finance and Analysis

Policy Number                6.1

The following are responsible for the accuracy of the information contained in this
document,

Responsible Officer:         Associate Vice President /Bursar (Finance and Analysis)
Responsible Office:          Finance and Analysis
Approval By:                 Cabinet
Approval Date:               July 8, 2003
Effective Date of Policy:    September 1, 2003

The following are responsible for the administration of this policy,

Primary Office               Contact
Finance and Analysis         Associate Vice President (Finance and Analysis)


a) Policy Statement

This policy is committed to an incentive system for budget managers that
encourages them to manage their operations in the most effective and fiscally
responsible way enabling them to carry forward year-end surplus funds and
avoid year-end deficits.

b) Reason for Policy

The overall goal of this policy is to provide an incentive system for budget
managers that will encourage them to manage their operations (which may
include both base and non-base activities) in the most effective and fiscally


                                         16
responsible way. This policy supports the implementation of Responsibility
Center Management (RCM) and is intended to apply at the responsibility center
level. The two main types of responsibility centers that will be included in this
policy are:

•   the profit center which generates revenue and incurs costs with the manager
    being accountable for both,

•   the cost center, which generates little or no revenue but incurs costs with the
    manager being accountable for costs only.

       Under Responsibility Center Management the academic units (teaching
       units) who generate revenue through their student activities will be treated
       as profit centers and will be referred to as RCM academic units. The RCM
       academic units will include Penticton Campus, Salmon Arm Campus,
       Vernon Campus and the Kelowna faculties of Arts, Business, Education,
       FACE, Health, Science, Technologies, and Trades. The non-academic
       units (non-teaching units) will for the most part be treated as cost centers
       and will be referred to as non-academic responsibility units. For the
       remainder of this policy the use of the term “unit” will refer to both the
       RCM academic units and the non-academic responsibility units.

Revenues and costs incurred for a unit should relate to the activities of the unit.
Costs incurred should be reflected where the decision to incur the expense was
taken. Revenues should follow to the unit responsible for the revenue generating
activity. Resulting year-end surpluses can be carried forward by the unit to be
used in future periods. Allowing carry over funds is essential to long term
planning for multiple year programs and initiatives. The ability to retain surpluses
must also be balanced with the responsibility for deficits. While there needs to be
some consideration for factors beyond the control of the decision-makers, it is
generally expected that over time a particular unit will operate without an
accumulated deficit.

It is not the goal of the organization to accumulate large surpluses. The primary
goal of the organization is to deliver training and educational services. Therefore
the accumulation of surplus is merely a means to achieving better delivery of
services over time and not an objective in itself. To preserve the focus on the
primary organizational objective a limit needs to be set on the amount of surplus
that can be accumulated.

If in delivering training and educational services the actual performance of a unit
is significantly different than budgeted performance expectations there needs to
be a review by the appropriate senior executive to determine that surplus/deficit
carry forward amounts are appropriate related to performance targets.




                                         17
The determination of any surplus or deficit must be consistent with generally
accepted accounting policies and procedures and with Okanagan University
College (OUC) financial policies.

Policy Objectives:

The objectives of establishing this policy can be summarized as follows:

•   To moderate the effect of fiscal year end purchasing decisions.

    In the present mode of operations there is a propensity to adopt a “use-it or
    lose-it’ strategy to managing budgeted expenditures. It is desirable that all
    purchase decisions be made on the basis of a clearly defined need and a
    product evaluation of the alternatives available to meet that need. By
    providing for retention of surplus it is anticipated that surges in spending,
    aimed at fully utilizing the available budget, in the final months of the fiscal
    year will be avoided.

•   It will provide an opportunity for improvements in planning operations from
    year to year.

    The ability to operate from a financial platform of an accumulated surplus will
    allow the operating units to take a longer perspective in the planning process.

•   To allow for forward planning of special initiatives or projects that cannot
    reasonably be expected to be achieved in one year.

    There may be some initiatives that are presently being missed because of an
    inability to fund them out of one year’s budget. There are also some
    expenditures necessary every few years that stretch the financial resources in
    those years and effect the setting of operational priorities. The ability to retain
    surplus will allow an operating unit to plan for these and provides for the
    funding over time.

•   To enable the organization to absorb unexpected costs and manage for
    contingencies.

    Occasionally the organization will incur unexpected costs that have not been
    budgeted for. In order to have funds available to cover these contingencies
    there is a need to have some accumulated surplus to absorb these
    expenditures.

•   To motivate management and encourage good financial management.

    By retaining surplus, the managers who demonstrate good financial
    management will have control over a portion of the resources that their


                                          18
    management made available. This will provide them with some additional
    resources to devote to their operations and provide stronger motivation to
    manage them well.

    Units will have little incentive to outperform their financial targets unless they
    are able to retain a significant portion of the surplus against target. Units will
    also have little incentive to achieve their bottom-line performance targets
    unless they are required to cover a significant portion of their deficit against
    target. For these reasons, this policy will allow the unit to keep annual budget
    surpluses while requiring it to repay annual operating deficits, as defined by
    this policy.

c) Policy Details & Procedures

Operating Surplus

The annual operating surplus for each unit will be determined in accordance with
generally accepted accounting principles and with OUC financial policies. An
operating surplus is defined as the unit’s ending financial result that is greater
then the annual budgeted net target. Each year the annual surplus amount
would be “banked” and added to a specific reserve account for each unit on an
accumulating basis.

As a basic premise, the accumulation and use of banked surpluses will be as
unrestricted as possible, however some restrictions are necessary. Restrictions
on banked surpluses are as follows:

•   The unit must maintain a minimum reserve balance of 0.5% of its total
    expenditure base. A minimum reserve will serve as a contingency fund for
    unforeseen events.

•   The unit may accumulate surplus in its reserve to a maximum level of 5% of
    its total expenditure base.

•   Accumulated surplus may only be spent on one-time costs (short term
    operating and facilities costs, program enhancements such as investments in
    equipment, program development or start-up costs, etc.). The surplus may
    not be used to create new on going permanent positions. It may not be used
    to fund projects that would require additional ongoing permanent funding of
    any type unless permanent funding has been identified and is forthcoming.

•   Surplus funds must be accumulated prior to spending against them.

•   The unit manager may withdraw amounts of $10,000 or less per expenditure
    item from the reserve account. There are no limits on the number of
    withdrawals of this amount down to the minimum reserve level.


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•     For withdrawals from the reserve account greater than $10,000 per
      expenditure item the unit must submit a proposed spending plan to the Vice
      President (Academic)/Associate Vice President (Finance and Analysis) which
      ever is deemed the appropriate senior manager for his/her approval.

•     On an annual basis the unit must submit a spending plan the Vice President
      (Academic)/Associate Vice President (Finance and Analysis) explaining how
      surplus funds have been or will be expended.

The Vice President (Academic) and the Associate Vice President (Finance and
Analysis) will review annual surpluses that would result from extenuating
circumstances to determine whether the surplus is appropriate to carry forward.
This will include situations where the actual performance of a unit is significantly
different than budgeted performance expectations. A mandatory review of
variances related to performance targets will be completed each year as part of
this review.

(Note: Any surplus related to capital expenditures will be subject to the policy on
carry forward of capital funding and will not form part of this carry forward policy).

Operating Deficit

A deficit is defined as an ending financial result that is less than the unit’s annual
budgeted net target. A deficit will be determined in accordance with generally
accepted accounting principles and with OUC financial policies.

Units are expected to manage their resources in a manner that avoids creating
deficits. Should a deficit occur, the unit would be required to develop a plan to
correct the causes of the deficit and to eliminate it. Deficits that occur can be
covered by accumulated surplus that the unit has in its reserve account. If this
would draw the accumulated reserve balance down to an amount lower than the
minimum balance required, the unit would be required to develop a budget plan
to bring the reserve back to the minimum balance during the next annual budget
cycle. Time lines required to correct the deficit situation that are different than
above, would be determined in consultation with the Vice President (Academic)
and the Associate Vice President (Finance and Analysis).

If a deficit results from extenuating circumstances beyond the budget managers
control the Vice President (Academic) and the Associate Vice President (Finance
and Analysis) will need to determine how the carry forward of the deficit is to be
covered.

d) History
N/A




                                          20
APPENDIX B – Tuition Fee Revenue Allocation Policy #6.2




   Title                     Tuition Fee Revenue Allocation Policy

Policy Area                  Finance and Analysis

Policy Number                6.2

The following are responsible for the accuracy of the information contained in this
document,

Responsible Officer:         Associate Vice President /Bursar (Finance and Analysis)
Responsible Office:          Finance and Analysis
Approval By:                 Cabinet
Approval Date:               July 8, 2003
Effective Date of Policy:    September 1, 2003
This Policy                  OUC Policy Manual 1995 10 30
Supercedes:

The following are responsible for the administration of this policy,

Primary Office               Contact
Finance and Analysis         Associate Vice President (Finance and Analysis)


a) Policy Statement

This policy outlines the tuition fee revenue allocation methodology for sharing of
tuition fee revenue across the organization, establishment of annual tuition fee
revenue budgets and the allocation of actual tuition fee revenue when received.

b) Reason for Policy




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The tuition fee allocation model is a method of estimating tuition fee budgets and
allocating instructional fees to each of the faculties and campuses that reflects
the tuition revenue earned by these units. The tuition fee allocation model will
apply only to tuition fees for degree, diploma and certificate programs funded
through base funding.

•   This model assumes that the Okanagan University College (OUC) Board of
    Governors will have final approval of all tuition rates for base-funded
    programs and courses.

•   Both tuition and government funding will be shared across academic and
    support units of OUC. This will allow the support units to share in the growth
    of tuition revenue resulting from increased student volumes or increased
    tuition rates. It also allows for the sharing of any increase or decrease in
    government funding across the total organization.

•   Tuition revenue budget estimates will be determined based on credit billing
    hour history as calculated by the Registrars Office.
•   Actual tuition revenue will follow to the unit of instruction based on the actual
    credit billing hours for the unit in that fiscal year.

Definitions:

Definitions are provided below for some basic terms used through out the
document.

Credit Billing Hour: This is the value used to determine the cost of a course.
This value is multiplied by the per-hour tuition rate established annually by the
OUC Board of Governors. A credit billing hour is determined as follows:

•   For Academic courses it is based on academic credits. For many courses
    billing credit hours are equal to academic credits. For any course with higher
    costs of delivery, such as lab courses, studio courses, courses with tutorials,
    and other, billing hours are calculated to be academic credits multiplied by a
    factor of 1.15.

•   For Health, Vocational and Trades programs billing credit hours are the
    number of hours delivered in a program component divided by 30. This
    division occurs because there are 30 instructional hours in a full-time week of
    vocational study. The billing credit hour value therefore represents the
    number of full time weeks of instruction delivered in the program component.

•   For ABE and ASE programs, the billing credit hour value is the number of
    instructional units delivered through the course over the entire length of the
    course.



                                          22
Credit hour base: The credit hour base is the historical credit billing hours for an
instructional unit, be it just the previous year actual (or an average of previous
years.)

Explanation of policy details:

•   Tuition fee revenue sharing: The allocation methodology for sharing revenue
    is based on financial information that indicates that central and support costs
    for the organization are approximately 20% of the total budget.

•   Determining tuition fee revenue budgets: Other universities have indicated a
    preference for the previous two-year average for the credit hour base as it is
    intended to allow a unit time to adjust resources to correspond with changes
    in net tuition revenue increases and decreases.

    In reviewing the historical data we found that using a two year average to set
    tuition budget targets would be detrimental to the Vernon, Penticton and
    Salmon Arm Campuses because their credit billing hours had decreased in
    2002/03. The average of the previous two years was therefore greater than
    their most recent experience and may set them a budget target they could
    never meet. However, the two-year average is advantageous to most
    faculties within the South Kelowna and North Kelowna campuses as it was
    lower than their most recent year’s experience for 2002/03. It has been
    suggested that the changes in credit billing hours at all campuses resulted
    from changes to the collective agreement in 2002/03 as it related to Mode C
    teaching loads.

    In order not to disadvantage the new Responsibility Center Management
    (RCM) units it seemed appropriate to start the RCM budget process for tuition
    revenue based on a mixed allocation model. The credit hour base will
    therefore be the previous two-year average billing hour credits for the
    faculties and only the previous year billing hour credits for the regional
    campuses. The impact of the initial implementation of Mode C teaching loads
    in 2002/03 should be incorporated into the two-year average for 2004/05. In
    2004/05 tuition revenue budgets for all RCM instructional units should be
    based on the two-year average as it is more appropriate under RCM to have
    a common allocation model for all units.

•   Actual tuition fee revenue allocation: It is most effective to record the initial
    assessment for tuition fee revenue to a central pool and then allocate tuition
    fee revenue to the responsibility units from the central pool. At this time it is
    more effective to calculate the sharing of tuition fees and to prepare a journal
    entry for the accounting entries from central perspective than to program the
    student system to make this calculation and feed the accounting information
    electronically to the appropriate account codes.




                                          23
c) Policy Details & Procedures

Allocation methodology:

1. Sharing of tuition fee revenue between academic (instructional) units
   and central and support services:

       Tuition fee revenue will be shared 80% to the academic units and 20% to
       central and support services.

2. Determining budget estimates for tuition fee revenue using a credit hour
   base:

   •   Budget estimates for 2003/04:

       Faculty RCM units:

Tuition fee budget estimates for faculty instructional units will be determined
   for the appropriate unit based on an average of the previous two years
   credit billing hours times the current billing hour rate as approved by the OUC
   Board of Governors for 2003/04. (Example: The 2003/04 faculty unit budget
   will be prepared based on an average of the 2001/02 and 2002/03 credit
   billing hours. A factor weighting of 1.15 has been applied to the average credit
   billing hours where appropriate).
        Tuition fee budget estimates for any new programs or new capacities
        initiated during budget development will be conservatively based on the
        projected credit billing hours times the current approved billing hour rate.

       Regional Campus RCM units:

Tuition fee budget estimates for regional campus instructional units will be
   determined based on the previous year’s credit billing hours times the
   current billing hour rate as approved by the OUC Board of Governors for
   2003/04. (Example: For the 2003/04 budget year the budget estimates would
   be based on the 2002/03 credit billing hours. A factor weighting of 1.15 has
   been applied to the previous year’s billing credit hours where appropriate).

       Tuition fee budget estimates for any new programs or new capacities
       initiated during budget development will be conservatively based on the
       projected credit billing hours times the current approved billing hour rate.

   •   Budget estimates for 2004/05:




                                         24
Tuition fee budget estimates for all RCM instructional units will be determined
   for the appropriate unit based on an average of the previous two years
   credit billing hours times the current billing hour rate as approved by the OUC
   Board of Governors for 2004/05. (Example: The 2004/05 budget will be
   prepared based on an average of the 2002/03 and 2003/04 credit billing
   hours. This average will include any changes in factor weighting as approved
   by the Board for 2004/05).

      Tuition fee budget estimates for any new programs or new capacities
      initiated during budget development will be conservatively based on the
      projected credit billing hours times the current approved billing hour rate.

3. Actual tuition fee revenue allocations:

Actual tuition fee revenue will be recorded in a central pool as it is assessed.
   The total tuition fee revenue applicable to each instructional unit will be
   determined based on the actual credit billing hours for the appropriate unit.
   The Registrar’s Office will provide this information to Finance.

      The calculation to determine the sharing of tuition between the academic
      (instructional) units and the central and service units on an 80/20 basis will
      then be completed by Finance and Accounting staff. The 80% share of the
      tuition revenue for each instructional unit will be recorded in the
      appropriate unit through a journal entry process. The 20% share of tuition
      fee revenue for the central and support units will be recorded centrally (as
      is currently done for all tuition revenue) and will become part of the overall
      funding for support and central services.

d) History

Supercedes: OUC Policy Manual 1995 10 30




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